Introduction The corporate sector in Malaysia has grown rapidly and steadily since the 90s. The total market capitalization of listed companies on the main and second boards of the Malaysian stock exchange has grown by an average of 40% per year throughout this period (KLSE, 2002). The government has taken many initiatives to properly govern Malaysian corporate sector in line with its growth. Currently, the Malaysian capital market is governed by the Acts of Parliament such as Capital Market and Services Act 2007, Securities Industry (Central Depositories Act) 1991, Securities Commission Act 1993 and Companies Act 1965. The two main agencies that regulate the Malaysian capital market are Securities Commission Malaysia (SC) and Bursa Malaysia. However there are other bodies like Malaysia Institute of Corporate Governance (MICG) and MAICSA that support creating value corporate governance. However, this paper will mainly study two agencies namely Securities Commission Malaysia and Malaysia Institute of Corporate Governance and their roles in preventing corporate fraud in Malaysia particularly in the case of Sime Darby corporate scandal in 2010.
Securities Commission Malaysia (SC)
SC is a self-funding statutory body that was established on 1 March 1993 under the Securities Commission Act 1993 with investigative and enforcement powers that governs the Malaysian stock exchange as well as being responsible for the enforcement of the capital market rules and regulations. SC plays an important role with r espect to corporate fraud and it has the power to prosecute companies for committing fraudulent acts. SC administers the Acts for Securities Commission Act 1993; Capital Markets and Services Act 2007; and Securities Industry (Central Depositories) Act 1991.
SC reports to the Minister of Finance and tables its accounts annually in Parliament. According to the SC website (2012), the Commission's regulatory functions include supervising exchanges, clearing houses and central depositories, registering authority for prospectuses of corporations other than unlisted recreational clubs, approving authority for corporate bond issues, regulating all matters relating to securities and futures contracts, regulating the take-over and mergers of companies and all matters relating to unit trust schemes, licensing and supervising all licensed persons, encouraging self-regulation and
1
ensuring proper conduct of market institutions and licensed persons. In short, SC has broad powers to make rules, interpret rules, investigate and enforce rules relating to securities while regulating the conduct of brokers, dealers, investment advisers and their representatives, the exchanges, public companies and its participant (Zainal Abidin & Hashim, 2010).
SC works with other regulatory bodies and authorities such as the Insolvency Department of Malaysia, Bank Negara Malaysia, BURSA Malaysia, MCCA and related government agencies, to ensure that good corporate governance is practiced by the market players. SC‟s ultimate responsibility is to protect investors. Its enforcement and legislation is divided into four sections, which are criminal prosecution, civil actions, administrative actions and cases compounded. For instance, criminal prosecution and civil actions will be cases that SC brings forward to court while the administrative actions will be the warning, revamp or revoke of license. For cases compounded are less serious offences where SC will offer certain amount of compounds (penalties in monetary terms) and warning letter (Sadique, Roudaki, Clark & Alias, 2010).
Roles of The Securities Commission In The Case of Sime Darby SC should strictly emphasize the code of conduct and maintain the internal whistle blowing mechanism to all public listed companies (PLCs) in order to support the foundation of value governance practices. The conflict in Sime Darby could be minimized and massive economic loses could be avoided if preventive necessary actions such as strengthening internal audit controls and risk management were taken earlier thus avoiding the question of loss of confidence and reliance on corporate governance systems. Further emphasize on whistler blowers duty to auditors and clarification of best protections against retaliation for specific persons, which include CEO, secretaries, internal auditors should be able to assist Sime Darby in the first place from being misdirected and mismanaged. SC should evaluate the performance of PLCs strictly and regularly while maintaining the accuracy of information submitted since the business nature and structure of every listed companies are different and sometimes can be very complex and diversified like Sime Darby. Every now and then, SC officers should be invited by Sime Darby as external observer to sit in their audit meetings so as to give their views should there any important issues or matters that are being overlooked by Sime Darby. SC also should emphasize on the tenure period for cumulative term of independent directors up to 9 years onl y. This is necessary for long stretch 2
of service may prejudice a director‟s ability to act independently and not in the best interest of the company. SC should also stress on the formalization of Board Charter in annual reports. The main purposes of having formalized board of charter in annual reports which include roles of board, board function, ensuring efficiency and processes of boards are to set out key values, principles and ethos of the company, to disclose the decision and responsibilities and power between board and the difference committees established by the board, the chairman and CEO, to act as reminder of board‟s role and responsibilities as well as to be a guideline to BOD to assess its performance. Simultaneously, this will highlight any issues or conflicts the board are unable to resolve and review what actions should be taken be it tactical or strategic.
Malaysia Institute of Corporate Governance (MICG) Malaysian Institute of Corporate Governance (MICG) was established in March 1998 by High Level Finance Committee (HILF) to raise awareness and practice of good corporate governance in Malaysia. It was a very critical issue during that time due to financial crisis in Asian countries (in 1997) due to poor corporate governance practice. MICG is a non-profit public company incorporated by guarantee. It has 5 co-founding members, which are: The Federation of Public Listed Companies (FPLC), Malaysian Institute of Accountants (MIA), Malaysian Association of Certified Public Accountants (MICPA), Malaysian Institute of Chartered Secretaries and Administrators (MAICSA) and Malaysian Institute of Directors (Zainal Abidin & Ahmad, 2007). MICG‟s mission statements are to facilitate business and corporate governance development in the country, to improve corporate governance best practice, to fine tune corporate governance concept and practices suit the needs of our own nation, to achieve satisfactory level of corporate governance best practice, to promote voluntary disclosure of corporate governance best practice & to strengthen corporate governance principle and compliance effort. In short, MICG provides an independent and neutral platform for all stakeholders for the exchange of ideas, opinions and debates to bring about continuous improvement in corporate governance best practices among corporations, private investors and institutional investors, business and professional bodies, and educational institutions as well as relevant authorities and regulatory agencies. Unlike SC, MICG can only act as advisory and facilitators for the organizations in Malaysia over CG practices. Hence, MICG
3
is also known as “The Recognized CG Training Centre (CGTC)” in Malaysia. (Zulkafli, Abdul Samad & Ismail, 2008) The objectives of MICG establishment are to be the leading organization for enhancement of CG development and best practices, to establish linkages and networking with the leading CG references and research organizations, to be authoritative facilitator for advisor, technical and support services, to work closely with various shareholders as well as company directors and to complement the regulators (SC, CCM & Bursa Malaysia), to act as an independent body to conduct CG rating and ensuring the ratings credibility & to be independent, fair and truthful in providing input or information to enhance the performance of public listed companies to intended investors from within and outside Malaysia. MICG’s Achievements
Over the years, MICG has been conducting many seminars and talk over CG to raise awareness of the importance of CG to Malaysian organizations. Other than that, MICG has been doing numerous researches and publications of papers and books over the area of CG for example “The Corporate Governance in Malaysia” by Zulkafli, Abdul Samad & Ismail. MICG has also formed alliances with UiTM, BizAid Technologies Sdn Bhd , ISI, Marcus Evans, ICC Consultant Centre, IBC Asia Ptd Ltd & IDEA.net. These are active partners of MICG in conducting researches in CG practices in Malaysia, developing IT system for CG purposes, conducting CG related consultancy services and promoting CG practices through seminars and talks (MICG website, 2011).
Roles of The MICG In The Case of Sime Darby MICG can encourage and assist the public listed companies such as Sime Darby to establish electronic voting system. This will enable shareholders not to miss out any AGM or EGM due to location or distance from meeting venue. This will indirectly encourage more participation of minority shareholders in organization corporate decision-making processes (MCCG, 2007 & MCCG Blue Print, 2011). This is one of the main reasons for Sime Darby‟s crisis is due to lack of minority shareholders involvement in corporate decision making. MICG can also provide consultations to companies, which are listed in „focus list‟. MICG will analyze their current CG practices, come out with improvement suggestions and monitor their progress over 2 to 3 years. MICG can also notify the institutional shareholders
4
of the companies in the „focus list‟ on the issues because some institutional investors might not be aware of the underperformances of their invested companies (MCCG, 2012& MCCG Blue Print, 2011). MICG can also initiate the movement of industry driven umbrella body for institutional investors by bringing together the collective voice of institutional investors under one umbrella. This action will give them a better platform to address impediments and seek solutions especially in their investment companies‟ mismanagement issues. MICG can encourage public listed companies to have more independent directors to sit in the board. This is in line with the research resulted in Blue print 2011, the companies which are having more than 33% independent board of directors tend to perform better financially. MICG can also discourage duality where the same person is discouraged from becoming chairman and BOD at the same time. Simultaneously, the tendency of power centrality and abused by one single person can be reduced. MICG can encourage public companies to sign Corporate Integrity Pledge with Malaysian Integrity Institute. Sime Darby has signed the pledge in 9th June 2011. Until March 2012, there is 71 companies have done the same. Upon signing, MACC will act as secretariat to co-ordinate and assist the implementation of the pledge. Companies will develop their own self regulating system to prevent mismanagement and corruptions with the help of MACC and Malaysian Integrity Institute.
Conclusion Corporate governance builds trust and creates sustainable stakeholder value (Demise, 2005). Poor corporate governance practice has been linked with the scandal of Sime Darby. Creating a value governance will only be successful if CG practices exist with all the 5 factors of accountability, fairness, independency, transparency and responsibility are truly upheld in the organization management team. A good CG cannot be achieved merely on the strength of regulations; it needs to have a fully functioning self and market disciplinary mechanism where all the shareholders proactively assume their responsibility to instill CG culture in the organization. SC and MICG can only do so much to govern and enhance the behaviors of companies, but the agent of changes and the successful determinant is the companies themselves.
5
References
1. Demise, N. (2005), Business Ethics and Corporate Governance, Business Society, 44(2):211-217 2. Corporate Governance Blue Print 2011., Retrieved from http://www.sc.com.my 3. KLSE. (2010), KLSE-Price Waterhouse Coopers Corporate Governance: 2002 Survey of Public Listed Companies in Malaysia (2002), Kuala Lumpur, Malaysia: Kuala Lumpur Stock Exchange (KLSE) 4. Malaysian Code of http://www.sc.com.my
Corporate
Governance
2012.,
Retrieved
from
5. Malaysian Code of Corporate http://www.micg.org.my/home.htm
Governance
2007.,
Retrieved
from
6. Malaysia Institute Corporate Governance (MICG) website., Retrieved from http://micg.org.my/cgresourcecenter.htm 7. Mohamed Sadique, R., Roudaki, J., Clark, M.B. & Alias, N. (2010), Corporate Fraud: An Analysis of Malaysia Securities Commission Enforcement Releases, World Academy of Science, Engineering and Technology 66 2010, p.1216 8. Sime Darby Corporate Governance Action Plan/Report., Retrieved http://www.simedarby.com/upload/Sime_Darby_Corporate_Governance.pdf
from
9. Zainal Abidin, Z. & Hashim, A.S. (2010), Corporate Governance of the Company Secretary, UITM Shah Alam: University Publication Centre (UPENA) 10. Zainal Abidin, N.A, Ahmad H@A., (2007), The Effect of Corporate Reform and State Business Relation in Malaysia, Asian Academy of Management Journal , Vol.12, No 1, 23-24, January 2007. 11. Zulkafli, A.H., Abdul Samad, M.F. & Ismail, M.I. (2008), Corporate Governance In Malaysia, pp. 6-8
6
